Stock consolidations expected to persist for most of 2014

MANILA, Philippines - The consolidation phase in the local stock market is expected to persist for the most part of the year but strong fundamentals amid the weakness in other emerging markets still make the country an attractive investment destination.

The ongoing sideways movement in the local bourse is an opportunity to buy cheaper stocks prior to the benchmark index ending the year at 6,600 to 6,900, officials of leading online brokerage firm COL Financial Group Inc. said yesterday.

“The sell-off in the Philippine stock market continues at present as the necessary adjustments in valuations, interest rates and the peso are not yet complete,” said April Lynn Tan, head of research of COL Financial.

The weakness of other emerging markets and bad news locally like the poor third quarter corporate earnings, Super typhoon Yolanda and soft spots in fourth quarter economic data are also hurting investors, Tan said.

Since posting its 31st all-time high at 7,392.20 on May 15 last year, the Philippine Stock Exchange index (PSEi) has fallen to 6,106.03 as of yesterday, particularly weighed by concerns on higher interest rates and reduced liquidity in the market.

For Juanis Barredo, chief technical analyst of COL Financial, the benchmark index will continue its consolidation between 5,500 to 6,460 for at least the first half.

“It’s a wide range because we have external events that are pressuring emerging markets downwards,” Barredo said, adding that fund managers are prone to invest and pull out sharply in emerging markets like the Philippines.

For this year, COL Financial expects the PSEi to end at 6,600 to 6,900, representing a 10 to 15 percent upside from the 6,000 territory.

“Given the favorable long-term growth of the economy, we believe that fundamentals will eventually catch up with valuation in 2015 assuming that the PSEi remains unchanged for the rest of the year,” Tan said.

Given gloomy sentiments, investors have overlooked the abundance of positive local news like strong overseas Filipino remittance and business process outsourcing revenues, resilient consumer sector, the Philippines’ investment grade rating and the rebound in exports, Tan said.

Aggregate earnings of Philippines companies, for their part, are seen to grow 6.4 percent this year, slower than the 12-percent improvement in 2013 due to lower trading gains for banks. But for next year, combined corporate net income might jump 14 percent, Tan said.

In terms of trading strategy, COL Financial advised its clients to pursue range trading.

Barredo said investors should buy in dips or as the PSEi approaches the 5,700 level and pocket gains as the main index nears the 6,400 territory.

COL Financial is the country’s largest online brokerage firm in terms of customer accounts, ending 2013 with 82,000 clients.

Client equity handled by the brokerage firm hit the $1-billion mark or P47.1 billion at the end of the third quarter compared with P34.4 billion in December 2012.